Dive Brief:

• Medtech M&A, investment in R&D and venture capital backing all jumped over the past year, according to analysts at EY.
• Growth in R&D spending at pure-play medtechs rose to a level last seen before the 2007-2008 financial crisis. Medtech companies also struck more takeover deals and received more VC funding than in any other year tracked by EY.
• Buoyed by the big year, the analysts see opportunities for medtech companies to rethink their business models, for example by leveraging data and pushing for regulatory changes.

Dive Insight:

The future of parts of the medtech industry looked highly uncertain as hospitals began deferring elective procedures in response to the pandemic early in 2020. However, while the pandemic is still a headwind for some companies in the delta phase of the crisis, the industry as a whole weathered the storm and emerged with multiple opportunities that were strengthened by COVID-19.

EY has quantified the level of confidence in the future of medtech by looking at several indicators in its latest annual "Pulse of the Industry" report. The report shows strategic and financial investors see opportunities to innovate and grow sales in the years to come. 

Pure-play medtechs increased R&D spending by 17.2% last year. The increase continues the recovery from the nadir of 2017, when R&D spending fell, and brings the growth rate up to the highest level since 2006. Spending growth fell during the 2007-08 financial crisis and remained low over the following decade. 

M&A activity rose in the year up to June 2021, too. At 288, the number of M&A deals struck over the 12 months far exceeds any other period in EY records going back to 2005. The value of the takeovers was down compared to some prior periods though because of a relative lack of megadeals.

The analysis also suggests investors are keeping the pipeline of new M&A opportunities well stocked. In the year up to June 2021, U.S. and European VC investment hit $9.1 billion. The figure is up 34% over the previous year and higher than any other period in EY records dating back to 2011. 

With industry revenues growing 6.3%, marking the fourth consecutive year of growth, and valuations rising 128% from the start of 2020 to August 2021, all of the indicators discussed in the report are positive.

The question now is how medtech can build on the progress and the disruption wrought by the pandemic to accelerate growth in the years to come. 

The EY report identifies five key areas the analysts think medtech companies should focus on as they prepare for the future. Some of the areas cover long-term trends that were accelerated by COVID-19, such as the move to make care more customer centered and make better use of data and digital technologies. Other areas reflect more recent changes, with the call for focus on the resilience and agility of supply chains driven by the COVID-19 pandemic.